Ariba Muddles Through On-Demand Transition

Much of the loss can be attributed to a $24 million hit on real estate; the company's subscription software revenue logged in at $13.3 million, as compared to $11.8 million for the same year-ago quarter.

As it transitions to an on-demand model from an enterprise one, spend management software developer Ariba is suffering in the earnings department. Yet it fared better than the same year-ago quarter.

The companys total revenues for the third quarter 2006 were $73.6 million, compared to $77.7 million for the same year-ago quarter.

Software license revenue for the quarter was $6.1 million, compared to $10.1 million for 2005s third quarter.

Ariba did post some positive results for the quarter in terms of net loss, which was booked at $31.5 million, or 48 cents per share, versus a third-quarter net loss in 2005 of $288.7 million, or $4.52 a share.

Much of this years loss can be attributed to a $24 million hit on real estate—Ariba has a lot of empty office space in both California and Pittsburgh that its still paying for.

Subscription and maintenance revenue for the quarter were $31.6 million for the quarter, compared to $30.2 million for the same quarter in 2005.

The important number to pull out here, given Aribas on-demand strategy, is the subscription software revenue, which logged in at $13.3 million, as compared to $11.8 million for the same year-ago quarter.

"One year ago, our growth strategy centered on transitioning to an on-demand business model. While we remain focused on improving revenue, I am quite pleased with the progress our organization has made in its transition," said Bob Calderoni, Aribas CEO.

"We started out with a lot to do. We re-engineered 100 percent of our products while continuing to invest in our customers. We developed out-of-the box solutions and new delivery models. We opened the Ariba Network to non-Ariba customers, and retrained all of our customer-facing employees on the new products, and new go-to-market strategy."

During the third quarter, Ariba released on-demand versions of its namesake Procure-to-Pay, Electronic Invoice Presentment and Payment, Travel and Expense, and Contract Management for its Basic and Professional customers.

Add those to the multi-tenant versions of Ariba Sourcing and Spend Visibility, released earlier, and the company has a full suite of on-demand products, according to Calderoni.

And while the company has a lot of that work under its belt, it still has quite a ways to go, according to Calderoni.

To improve margins, Ariba is focusing on three key areas: Monetizing the Ariba Supplier Network; building its on-demand business; and providing connectivity solutions for SAP AG and Oracle customers, a combined installed base of about 65,000 customers.

Calderoni said he is buoyed by the results in the quarter.

/zimages/4/28571.gifTo read more about Aribas pursuit of the on-demand trend, click here.

The company garnered 40 new subscription-based customers, and its sales cycles were winnowed down to weeks rather than months.

The bulk of the transactions were made up of sourcing and networking solutions, and about half were companies measured in revenue below $5 billion.

"I believe this is a very important metric for us," said Calderoni, in Sunnyvale, Calif.

"Last year we were averaging 15 percent net new business; this year, its more than double that."

Calderoni said he is also encouraged that the company has embarked on the right strategy based on a lack of competition in the small and midmarket sector (which Ariba recently entered), since those companies have yet to actually make technology acquisitions from large competitors like SAP and Oracle.

"All said, the transition of a company that has the DNA of an enterprise company is not a small task; its a matter of changing the way each and every person in the company thinks of it," said Calderoni.

"Enterprise pushes for big commitments up front; on-demand is not to force big commitments up front. We have a long way to go before I can say the DNA conversion has happened in the company. There are clearly signs that its happening, but Im not gong to sit here and say its done."

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